The SME political football

Thank (or maybe blame) Kevin Rudd. During his failed leadership tilt, the former foreign minister made a direct pitch for the small business vote, saying the Government needed to do more to help small businesses become big ones.

Since then, the Government’s interest in the sector has soared. The small business minster is suddenly in cabinet. Prime Minister Julia Gillard is exhorting the importance of the sector.

And now, according to a report in the Australian Financial Review, the Government will step up its efforts to sell its mining tax by focusing on one of the mining tax’s key side-effects – the company tax cut (from 30% to 29%), which is due to come into effect from July 1 for businesses with less than $2 million in revenue, with other companies enjoying the lower rate from July 1, 2013.

“Labor strategists argue its political fortunes rest on convincing the electorate it has reached beyond its traditional blue-collar base into the new class of aspirational small business entrepreneurs,” the report says.

“The Federal Government has begun portraying the minerals resource rent tax, due to be debated in the Senate this week, as a way to fund substantial benefits for small business.”

Sounds great, doesn’t it? But there are a few other issues at play here that mean the timing of the small business tax cut is now in some doubt.

The Government has yet to introduce the legislation required for the tax cut, and says there are two reasons for the delay.

First, it wants to wait for its Business Tax Working Group to report back – the group is widely expected to recommend the introduction of a “carry back” loss rule for small business, which would allow them to claim back tax paid on profits in previous years if they have a loss.

Secondly – and perhaps more importantly – it wants to get the mining tax through the Parliament.

Yesterday we had the Greens saying they would not agree to pass the mining tax until the Government put its company tax cut legislation before Parliament.

This morning, Finance Minister Penny Wong has countered that by saying there will be no tax cut until the mining tax is through.

“We want to give small a business tax cut,” Wong told ABC Radio. “But we first want to get the minerals tax through.”

She also gave a good indication of the way that the SMEs will become a political football.

“I accept there will be continued discussions between the Greens and the government about various matters, but I don’t think it’s a fair thing to say to Australians ‘we’re going to stand in the way of taxing wealthy miners, we’re going to stand in the way of making sure we can get that revenue stream for the benefit of small business and certainty for Australian workers.”

In other words, Labor is positioning itself so it can point to the Greens and the Coalition and suggest that they are effectively hurting SMEs by blocking the mining tax.

It’s great politics, but does it really suggest a deep connection with the “new class of aspirational small business entrepreneurs”? Possibly not.

If Labor wants to use SMEs as leverage for the mining tax debate that’s fine, but entrepreneurs will want to see the Government continues to find ways to help the sector.

Getting the tax cut through on time is a start. Finding a way to fund the “carry back” idea for tax losses would also be fantastic. And if the Government can surprise us with something in the Budget then we’d be really thrilled.

But the Government needs to tread carefully here. A lot of its rhetoric at present is “us against them” – billionaires versus the workers, small businesses versus big miners – but things are rarely this simple.